Prepared by D. El-Hoss IGCSE Accounting Limited Liability ... · Dividend is paid before ordinary share dividend Preference shareholders are members of the company Do not usually

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www.igcseaccounts.com

Prepared by D. El-Hoss

IGCSE Accounting

Limited Liability Company

All questions are the copyright of Cambridge International Examination Board.

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1 At 1 February 2014, Green Meadow Limited had the following shares and debentures.

See next page.

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Green Meadow Limited

Statement of Financial Position at 31 January 2015

$

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Answer:

Answer: To compare with other businesses.

To compare with rate of finance cost on debentures etc.

Answer: To avoid dilution of control/because debentures don’t have voting rights. Ensure existing owners retain control of business.

2 Answer: C. decreases the retained earnings

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Answer:

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(b) Prepare the manufacturing account for the year ended 30 April 2015.

Quik Flo Limited

Manufacturing Account for the year ended 30 April 2015

$ $

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Answer:

(c) Prepare the income statement for the year ended 30 April 2015.

Quik Flo Limited Income Statement for the year ended 30 April 2015

$ $

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Answer:

Answer: Units of production which have been started but which have not been completed.

Answer: Increase in costs of raw materials (higher prices) direct labour (higher rates). Increase in level of production.

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4 Answer: A. profits after dividends and after transfers to general reserve 5 Answer:

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Answer: Decrease in selling price Increase in trade discount allowed to customers Selling at lower mark-up Increase in cost price Reduction in trade discount allowed by suppliers Not taking advantage of bulk buying

Answer: 6 Answer: C. $15 000

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7 Answer:

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8 Answer: C. 9

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Answer: Answer:

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Answer: To distribute profit to shareholders.

OR To reward shareholders for their investment.

Answer: Because insufficient cash was available to pay more.

To retain cash/profits for investment in the business. Answer:

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Answer: Profit has fallen Selling price has decreased Worse control of expenses Worsening credit control/increased bad debts Poorer control of inventory Capital employed has increased/non-current liability created

Answer: It may not be easy to sell the shares.

There will be loss of control by existing shareholders. Dividends payable may increase. If the interest rate is variable interest payable could increase. The company would have to pay interest irrespective of profit made. The bank may require security.

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10 Answer: D. retained earnings 11 Answer:

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Answer:

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Answer: (c)

(d)

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Answer:

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Answer: (f) Long term loans Debenture holders are not members of the company Do not carry voting rights Carry a fixed rate of interest Interest is not dependent on the company's profit Are often secured on the assets of the company's Debenture holders are repaid before the shareholders in a winding-up (g) Carry a fixed rate of dividend Dividend may not be paid if there is not enough profit Dividend is paid before ordinary share dividend Preference shareholders are members of the company Do not usually carry voting rights Capital is repaid before ordinary share capital in a winding-up Are not secured on the assets of the company

Answer:

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Answer: (b) Increase in gross profit Decrease in expenses/better control of expenses Increase in other income Different type of expenses Or other suitable reason

(c) 2017

In 2016 the percentage of expenses to revenue was 20%: in 2017 the percentage of expenses to revenue was 16%

Answer:

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Answer: The company had to wait longer to receive the money from the trade receivables.

Delay in receiving the money may be the reason why company took longer to pay trade payables.

Company would not qualify for cash discount in 2017. Company would not have to allow cash discount in 2017. Company may be charged interest on late payments in 2017. Company may charge interest on late receipts in 2017. In both years the company was paying the trade payables before receiving money from

the trade receivables. Or other suitable comment

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Answer: (f)

Offer cash discount for prompt payment Charge interest on overdue accounts Improve credit control Issue invoices and monthly statements promptly Refuse further supplies until outstanding balance is paid Invoice discounting and debt factoring (g)

Reduce credit sales/sell for cash only Obtain references from new credit customers Fix a credit limit for each customer Improve credit control Issue invoices and monthly statements promptly Refuse further supplies until outstanding balance is paid Offer cash discount for prompt payment Charge interest on overdue accounts

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Answer: (h)

Have to wait longer for the money Increased risk of bad debts Or other suitable disadvantage (i)

Do not have to allow cash discount May charge interest on overdue accounts Or other suitable advantage

(j)

The profit earned for every $100 used in the business

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Answer:

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13 Answer: B. $232 500

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Answer: (a) (b) Transfers made in the statement of changes of equity from the retained earnings.

Answer: In situations where there is not enough cash to pay a dividend To retain cash within the business rather than using it for dividends To use in future when the profits may be low/there may be a loss Or other acceptable comments

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Answer:

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15 Answer: B. $70 800 16 Answer: (a) Separate legal identity from its owner.

Limited liability. Can issue shares to raise capital. May find it easier to obtain loans/issue debentures. Continuity. Other reasonable answers acceptable

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(b)

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Answer:

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$ $

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Answer:

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Answer: (e)

To reduce the overdraft To fund an increase in inventory To purchase new non-current assets Growth/expansion

(f)

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Answer: Liquidity is poor. Both ratios appear low. There is insufficient cash to meet current liabilities as they fall due. Current assets do exceed current liabilities. There is already a bank overdraft. Too high a proportion of current assets is made up of inventory. Trade payables are much higher than trade receivables. Overdraft facilities could be withdrawn at any time. Relationship with credit suppliers could be damaged.

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Answer:

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Ordinary General Retained Total share reserve earnings

capital

$ $ $ $

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Answer:

Nyeko Limited Statement of Changes in Equity for the year ended 29 February 2016

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Answer:

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Answer:

Answer: Reduction in profit available for ordinary shareholders

Prior claim on the profits of the company Prior claim on the assets of the company in the event of a winding-up Or other suitable comment

18 See next page.

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Answer:

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$ $ $

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Answer: